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“No Docs” Educational Loans

Has such over exuberance ever created a greater “quiet financial crisis” for graduates and their parents?  Washington Bankruptcy Attorney James H. MaGee blogs on story of New York University graduate and her mother, who tell a tale of woe in cautioning others against student loan debts. The story appeared in The New York Times on May 24, 2010, on the front page of the Business Section.

In 1977, Congress passed legislation to make student loans very difficult to discharge in bankruptcy. Should you be disabled or perhaps the sole caregiver for a disabled person or present with some other exigent circumstance, you may be a shoe-in for a discharge of your student loans, but for everyone lucky enough not to be permanently disabled, student loans represent an ongoing scourge of unrelenting problems.

I intend to blog more on student loans later, but for now, those considering substantial student lending to “educate” themselves into better economic circumstances should read the Saturday, May 29, 2010, New York Times Business Section article entitled “Placing the Blame as Students Are Buried in Debt” by Ron Lieber in the “Your Money” column. Twenty six year-old Courtney Munna attended one of the best schools money could buy, New York University, and achieved a degree in interdisciplinary religious and womens’ studies. However, since graduating in 2005, Ms. Munna has been unable to make any progress on her student loan debts of $97,000, and in an ironic twist, she cannot leave school. By no choice of her own, she must remain continually enrolled in various night school programs at various colleges and trade schools here and there (other than New York University) so as to qualify for “full time student” status, which keeps her loans in deferment and out of default. After a full day’s work, off to night school Ms. Munna must go, for hours of study in topics in which she has no interest.

Even worse, Ms. Munna’s limited income mother has co-signed for many of these loans, and should Ms. Munna default, her mother will be hounded for payments.

This May 29, 2010 New York Times article is valuable for providing a brief narrative summary of the types of student loans available, and exactly how harsh the repayment terms of some of these loans can be.

Do I discourage education? Well, no, but back in “my day” of college through law school of 1985-1993, some of these “new fangled” aggressive student loans were not available, so it was harder to get screwed over by a student loan.

Student loans have always been somewhat questionable to me. I remember that when I started college in September 1985, the rule was that the interest rate on the first student loan you acquired in the Guaranteed Student Loan program (now I believe called the Stafford Loan program) determined the interest rate of any and all subsequent GSL/Stafford loans, so given that interest rates were still somewhat high in 1985, I ended up with 8.5% (or perhaps it was 8.65%) student loans, which I suppose for the day was not too bad, but was far from generous.

Discouraging education is something I am loathe to do, but if you are going to “take the plunge” and are of limited means, I might suggest that you leave the philosophy major and underwater basket weaving degrees for the rich kids Get a degree in a field in demand, perhaps in conjunction with a double-major in Mandarin Chinese, and settle for a minor in the more enriching (but less employment-ready) areas of study. If you acquire large student loans, you are going to need something that is more or less certain to pay off economically. Happy studies!

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